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The Look Back Measurement Method – Full-Time Employees

September 15, 2016


This is part one of a three part series. Please use the links below to view the other parts of the series. Part OnePart TwoPart Three


Despite almost being two years into the Play or Pay provision of the Affordable Care Act (ACA) there is still confusion surrounding some aspects of the complex provision. The ACA provides an employer the option to offer 95 percent of its full-time employees minimum essential coverage or risk paying a section 4980H penalty. For section 4980H purposes, a full-time employee is an employee who averages at least 30 hours of service per week. An employer can treat 130 hours of service as the monthly equivalent of 30 hours per week. Additionally, an employer has the option to adopt the look back measurement method. The logical choice for almost every employer is to adopt the optional look back measurement method to track its employees’ hours of service.

If the look back measurement method is adopted, an employee can be classified as a full-time employee, a part-time employee, a variable hour employee, a seasonal employee, or an ongoing employee. The remainder of this publication reviews the rules of the look back measurement method as it relates to full-time employees and some basic features of the look back measurement method. Future publications will detail the rules for the other four categories of employees.

First, and foremost, every employer who elects to use the look back measurement method must create a document stating the specific dates and timeframes it selects for the look back measurement method. This is a critical step so the employer, the insurer, and the employees know who is and, just as importantly, who is not eligible for an offer of coverage. Additionally, a health plan’s eligibility conditions must be disclosed in the summary plan description (SPD). In my legal practice, I have reviewed countless SPDs that leave out the eligibility conditions. This not only clearly falls short of the regulations requirements, but it could lead to litigation to determine if an individual should or should not have been eligible for an offer of health coverage. Every employer adopting the look back measurement method must document its specific dates and timeframes and incorporate that document into its SPD.

An employer must understand what counts towards an hour of service to properly apply the look back measurement method. An employee must be credited with an hour of service for each hour the employee is paid or entitled to be paid for the performance of duties on the job. Additionally, an employee must be credited with an hour of service for each hour the employee is paid or entitled to be paid due to vacation, holiday, illness, incapacity, layoff, jury duty, military duty, or leave of absence. If an employer does not count an employee’s hours of service accurately, the worker could be misclassified which could lead to various penalties and lawsuits. As a result, accurately counting an employee’s hours of service is the first step to fulfilling the employer’s duties under the look back measurement method.

For an employee paid on an hourly basis an employee’s actual hours of services must be calculated. However, an employer has three options for counting an employee’s hours of service, if he/she is not an hourly employee. First, an employer could count the employee’s actual hours of service in the same manner it calculates the hours of service for hourly employees. The second option credits an employee with eight hours of service for each day the employee is credited with an hour of service. The third option credits an employee with 40 hours of service per week for each week the employee is credited with an hour of service. The proposed rules prohibit an employer from manipulating an employee’s hours of service under the second and third option.

Once an employer has a system in place that accurately tracks its employees’ hours of service the next step is to classify an employee as a full-time employee, a part-time employee, a variable hour employee, a seasonal employee, or an ongoing employee. Different rules apply to each employee classification. In this publication we are reviewing the rules for an employee classified as a full-time employee.

A full-time employee is an employee who the employer reasonably expects to accumulate an average of at least 30 hours of service per week at his/her start date. If an employee is classified as a full-time employee, he/she must be offered coverage by the first day of the fourth calendar month following his/her start date or the employer will risk being assessed a section 4980H penalty. A calendar month is defined as one of the 12 months such as January, February, or March. So long as minimum essential coverage is made by or before the first day of the fourth calendar month, the time period before the offer of coverage will be counted as a limited non-assessment period. An employee in a limited non-assessment period is not included in at least one of the calculations for the section 4980H penalties. If the timely offer of minimum essential coverage does not provide minimum value, the employer will only be protected from the section 4980H(a) penalty. However, if the timely offer of minimum essential coverage also provides minimum value, the employer will be protected from both the section 4980H(a) and section 4980H(b) penalties.

If the employer does not timely offer coverage to a full-time employee by or before the first day of the fourth calendar month, the employee will count as not being offered coverage for purposes of the 95 percent rule for the three calendar months that could have been a limited non-assessment period in addition to any other calendar month for which the employee is not offered minimum essential coverage. The full-time employee limited non-assessment period demonstrates the complexity of the 95 percent rule, as an employer will not know if an employee qualified for a limited non-assessment period until after the fact (the date coverage is offered). This ex post facto calculation is a theme for most of the limited non-assessment periods. Consequently, employers must know which employees are in a limited non-assessment period and make sure coverage is timely and properly offered to ensure compliance with the 95 percent rule.

If an employee’s start date is not on the first day of a calendar month, that employee cannot subject the employer to any section 4980H penalty for that calendar month. Unlike all of the other limited non-assessment periods, there are no conditions associated with the partial month limited non-assessment period making it the simplest to apply. This limited non-assessment period can be combined with any of the other limited non-assessment periods.

Let’s review a couple examples to illustrate the concepts discussed in the initial publication of this series.

Example 1 – ABC Inc. is an applicable large employer. ABC Inc. has adopted the look back measurement method and offers full-time employees coverage by the first day of the third calendar month following the employee’s start date. The plan offered by ABC Inc. meets the minimum essential coverage threshold and provides minimum value at an affordable price. Stanley begins working at ABC Inc. on March 15, 2016 and is required to accumulate 40 hours of service per week under his employment contract. ABC Inc. classifies Stanley as a full-time employee. ABC Inc. offers and Stanley enrolls in minimum essential coverage that provides minimum value on June 1, 2016.

In this example, ABC Inc. will not be liable for a section 4980H penalty with respect to Stanley for the month of March because Stanley will be in the partial month limited non-assessment period. ABC Inc. also will not be liable for a section 4980H penalty with respect to Stanley for the months of April and May as Stanley was offered minimum essential coverage that provided minimum value by or before the first day of the fourth calendar month (July 1, 2016) following his start date (March 15, 2016). As a result, Stanley would also be in a limited non-assessment period for the months of April and May.

While ABC Inc. would not have to offer Stanley minimum essential coverage until July 1, 2016 to comply with section 4980H, waiting until this date may cause an issue with the 90 day waiting period. In general, the 90 day waiting period prohibits a group health plan from having a waiting period that exceeds 90 days. The 90 day waiting period does not mesh well with the section 4980H rule for full-time employees being offered coverage by the first day of the fourth calendar month. To resolve this discrepancy many employers have offered full-time employees coverage by the first day of the third calendar month following a full-time employee’s start date. There are other ways to comply with both rules, including the utilization of an orientation period, but the first day of the third calendar month is an administratively simple solution.

Example 2 – DEF Inc. is an applicable large employer. DEF Inc. has adopted the look back measurement method and offers full-time employees coverage by the first day of the third calendar month following the employee’s start date. The plan offered by DEF Inc. meets the minimum essential coverage threshold and provides minimum value at an affordable price. Stanley begins working at DEF Inc. on March 15, 2016 and is required to accumulate 40 hours of service per week under his employment contract. DEF Inc. classifies Stanley as a full-time employee. DEF Inc. forgets to offer Stanley coverage until October 1, 2016. Stanley enrolls in minimum essential coverage that provides minimum value on the day coverage is offered, October 1, 2016, until the conclusion of the year.

In this example, DEF Inc. did not timely offer a full-time employee, Stanley, minimum essential coverage by the first day of the fourth calendar month. However, DEF Inc. will not be liable for a section 4980H penalty with respect to Stanley for the month of March because Stanley will be in the partial month limited non-assessment period. To the contrary, for the months of April, May, June, July, August, and September DEF Inc. would be at risk of Stanley triggering a section 4980H penalty because minimum essential coverage was not timely offered. Once minimum essential coverage providing minimum value is offered Stanley would no longer be able to trigger a section 4980H penalty in 2016.

The rules for the look back measurement method are extremely technical and require careful attention to detail. If an employee is not timely offered coverage, the employer could be assessed a section 4980H penalty. Obviously, the more employees an employer has coming in and out of its payroll system the more complicated the look back measurement method is to administer. Automated software, which Accord can provide as part of its services, can make this process run smoother. Regardless if software is being used, every employer must define its eligibility conditions in a document. In the coming weeks, we will release articles explaining how a part-time employee, a variable hour employee, a seasonal employee, and an ongoing employee should be treated under the look back measurement method. Should you have any questions regarding this article or the look back measurement method please don’t hesitate to contact us.


About the author – Ryan Moulder serves as General Counsel at Accord Systems, LLC and is a Partner at Health Care Attorney's P.C. Ryan received his LL.M. from Georgetown University Law Center and his J.D. from Saint Louis University School of Law. He has distinguished himself as a leader in the newly created Affordable Care Act arena and has written and spoken on a variety of ACA topics as it relates to compliance for companies.


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The information contained on this site is not, nor is it intended to be, legal advice. An attorney should be consulted for advice regarding your situation. Copyright © 2016 by Accord Systems, LLC. All rights reserved. You may reproduce materials available at this site for your own personal use and for non-commercial distribution. All copies must include this copyright statement.